Policymakers 'unanimously favor' 50 bp base rate hikes, minutes show

MNB

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Members of the Monetary Council of the National Bank of Hungary (MNB) were in unanimous agreement on the degree to which the base rate should continue to be raised on the path to convergence with the central bank's one-week deposit facility at a monthly policy meeting in January, according to a report by news agency MTI.

"Reacting to the persistent increase in inflationary risks, Monetary Council members unanimously favored increasing the increments of base rate hikes to 50 basis points and beginning the catch-up process of the base rate to the level of the one-week deposit rate," the minutes from the meeting released on Wednesday show.

The minutes show the policymakers voted unanimously to raise the central bank base rate by 50 bp to 2.9% at the meeting on January 25.

MNB accelerated the pace of its tightening cycle from a 30 bp increase at the previous policy meeting after December inflation remained stubbornly high at 7.4%.

In a statement released immediately after the January meeting, the council flagged rate rises on a larger scale than the one in December.

"Mitigating second-round inflation risks and driving expectations appropriately have necessitated the continuation of the base rate tightening cycle on a monthly basis and in greater increments than in December. As a result, the base rate will catch up gradually to the one-week deposit rate evolving in the coming months," the council said in its post-meeting statement.

The one-week depo rate moved in tandem with the base rate from June until November, when the council decided the central bank must be allowed to set it over the base rate to respond to an increase in short-term risks in financial and commodity markets "quickly and flexibly". The rate was raised by 30 bp to 4.3% days after the January policy meeting.

At a press conference after the January meeting, MNB deputy-governor Barnabás Virág said the base rate and the one-week deposit rate "could converge in the course of the first half of the year".

The minutes released on Wednesday show council members "unanimously argued" that monetary conditions must continue to be tightened by raising the one-week deposit rate, while the base rate would catch up to the one-week deposit rate "evolving in the coming quarters".

The minutes also show council members agreed on the need to adopt a monetary policy that is both reliable and capable of responding to rapid changes on the market, while still anchoring inflation expectations.

"In the Monetary Council's unanimous assessment, in order to ensure price stability, a monetary policy was required which was reliable and capable of responding to a quickly changing financial and commodity market environment while appropriately anchoring inflation expectations over the longer term," according to the minutes.

Council members pointed out that risks on financial and commodity markets had "decreased slightly since December", but said "volatility was persistently high".

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